Equities | FX | Global | Rates
Market Moves
$-Bloc hike expectations moderated over the past week as inflation expectations pulled back. New Zealand’s two-year OIS swap slid 2.7 standard-deviations (std-dev), with the ten-year OIS swap following closely (-2.4 std-dev). It came as the New Zealand ten-year breakeven fell 30bps over the past week. While in Australia, two- (-1.4 std-dev) and ten-year OIS swaps (-1.6 std-dev) slid ahead of RBA minutes and the hotly anticipated Q1 Wage Price Index (WPI) on Wednesday. We think an upside surprise to the WPI could give cause the RBA to hike by at least 40bps at its next meeting, though 25bps is our base case.
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We standardise price changes across different markets to allow for cross-market comparisons.
Market Moves
$-Bloc hike expectations moderated over the past week as inflation expectations pulled back. New Zealand’s two-year OIS swap slid 2.7 standard-deviations (std-dev), with the ten-year OIS swap following closely (-2.4 std-dev). It came as the New Zealand ten-year breakeven fell 30bps over the past week. While in Australia, two- (-1.4 std-dev) and ten-year OIS swaps (-1.6 std-dev) slid ahead of RBA minutes and the hotly anticipated Q1 Wage Price Index (WPI) on Wednesday. We think an upside surprise to the WPI could give cause the RBA to hike by at least 40bps at its next meeting, though 25bps is our base case.
Investors bought back into rates across US Treasuries, Gilts, and EGBs. Two- and ten-year Gilts saw the largest vol-adjusted moves (-2.3 std-devs), it came as UK GDP growth fell by 0.1% MoM in March. The details showed a 0.2% MoM slowdown in services and industrial production. The latter fell for a second month running. While this week, UK CPI will show its first signs of an adjusted energy price cap. The Bank of England (BoE) is already looking for a very high print, so it should not great affect expectations. On the outlook, Henry believes BoE hike expectations are overpriced. Meanwhile, curve moves saw relatively anchored short-end rates (particularly in the US where 2Y was virtually unchanged), with bull-steepening out beyond the 5-7Y space.
Risk-off continued to dominate FX last week, with the US Dollar trading strongly (albeit with some reversal on Friday on likely profit taking). CNH saw the weakest weekly performance over the currencies we track (-2.1 std-dev) with poor data continuing into this week; YoY industrial production dropped to 2.9%, significantly below market expectations. Weak Chinese data also fed into AUD/USD (-1.4 std-dev) and NZD/USD (-1.6 std-dev) weakness. Elsewhere in G10, EUR/USD (-1.4 std-dev) broke through 1.05 while GBP/USD (-0.8 std) now trades at 1.22; more than two thirds of 191 MLIV Pulse Survey respondents see cable tumbling to $1.15, a near 6% decline from current levels. The Japanese Yen was the only positive performer of the week (+1.3 std-dev; Chart 2).
Equities continued their losing streak. A poor week for the S&P500 (-1.2 std-dev) and the NASDAQ (-1.0 std-dev) saw the indices extend their losing streaks to seven weeks; down 11.5% and 17.2%, respectively, since the start of April. TSMC (Taiwan) (-1.2 std-dev) has meanwhile been deteriorating for eight weeks, while the NIFTY (India) (-1.7 std-dev) has deteriorated for six-weeks. In contrast, the DAX (+1.1 std-dev) and CSI 300 (+1.0) saw some respite from their recent losses.
Metals and cryptocurrencies struggled with gold (-2.0 std-dev), silver (-1.6 std-dev), and iron ore (-1.1 std-dev) all sliding. Meanwhile, cryptocurrencies have been plummeting on account of rising interest rates and the stablecoin collapse, notably the Terra (LUNA) fiasco. Bitcoin (-1.1 std-dev) and Ethereum (-1.3 std-dev) saw less severe drops in comparison to our Smart Contract, Metaverse, DeFi, and Privacy Indices.
Markets this week
An important week for UK data. Labour market data for March and April arrives tomorrow. Meanwhile, Wednesday will see the release of the UK April CPI, expected to print 9.1% YoY up from 7.0% YoY, which will provide the first sign on the effect of the energy cap rise. The final Eurozone (EZ) CPI numbers come the same day, market data suggests there’ll be fading EZ inflation ahead. It’ll also be a heavy week for BoE and ECB policy maker comments, while the ECB will also release their meeting minutes. In the US, retail sales could surprise on the upside (expected 1.0% MoM) while primary elections continue to matter as they could determine if former President Trump has retained enough influence over the GOP to be its candidate in the 2024 presidential elections. You can read Dominique’s and Henry’s views on the week ahead and see our weekly COVID trackers here. While you can also watch Dominique and Andrew discuss markets this week here.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.